A put option allows an investor to pay a fixed premium for the right, but not the obligation, to sell an asset at a predetermined price until expiration. The long put strategy might be useful for an investor who is bearish on either the market or the price of a specific stock. Investors going long puts may profit if the price of the underlying shares falls below the combined value of the strike price and the net cost of the option. The payoff from a long put position is substantial, increasing point for point with the stock’s decline if the price of the underlying shares moves lower. The loss potential is limited to the initial cost of the option. Investors face a maximum loss of the premium at any point at or above the strike price, below which point losses diminish.
